On Fortress Geek

I know we mentioned we aren’t going to be cross-promoting the new website, and we won’t be.  However, I figured the readers of this blog probably wanted a bit more detailed explanation than what they saw in the newsletter about why and how Fortress Geek came about.

Why Not Grow Starlit Citadel?

I’m sure that’s a thought in some people’s heads.  The time and energy we devote to the new site could potentially be pointed at Starlit Citadel after all.    Except… not really.  Over the years, we’ve tried a lot of different advertising methods and a lot of different venues.  The ROI on most of those venues / advertising methods have not been great, and we’ve slowly trimmed them out.  Sure, we could potentially do more Video Reviews – but they are such a high-level marketing tool that their returns are often months, if not years ahead.  Other marketing tactics that have been contemplated all require years of long-term investment to see a return (working with schools & teachers, setting up demo programs in communities, etc) and are a lot of work to even get started.

Furthermore, Starlit Citadel is growing.  It’s just that the rate of growth has slowed down (you can’t grow at 100% forever after all – compound effects come in after a while. Not to say we did 100% btw).  That’s not surprising – at a certain point, we will reach saturation in the gaming business and growth rates will be eked out at the margins (3 – 5%).  That’s fine, but not very exciting.  At a guess, we’re probably 3 – 4 years out before we see that, but I have to start planning for that now.

A New Business

One of the lessons I learnt while owning my own business is to make sure you are actually interested in the business you are promoting.  There’s a certain level that professionalism and drive will get you, but to make a business really successful, you need to be passionate about it.

When I first started looking for a new business idea, I wanted a business that I could actually get behind and push.  One that I had no problem seeing myself promoting for the next 3 / 4 years before it became profitable.  At the same time, I started noticing the various cool stuff we brought into Starlit Citadel never sold – necklaces, chainmail dice bags, the posters, etc.  I figured it was because it was close, but no cigar for our current crop of customers.

Being a dyed-in-the-wool geek, I figure why not expand into more Geek related businesses? After all, there seemed to be a gap in the Canadian marketplace and we already had the logistics infrastructure in-place.  Thus… Fortress Geek.  We first started building the site in September 2012 but had to put everything on-hold when Christmas came.  In addition, we needed more space – both for Starlit and for the new stock in FG.

Same- Same?

So, what makes FG different? I have a few ideas and we are working hard on making some of them come through.  Right now, the site is pretty similar to every other geek site out there – there’s nothing special to it.  No USP.  It’s one of my major concerns, and one we believe we know how to tackle.  However, to get there it’s going to take a few more months and require us learning a few new skills.  Hopefully, some of those skills will show up in Starlit too, but we shall see.

The Profit Mirage

Finally! You broke-even and are now paying yourself a salary. Heck, you’ve got even a little profit.  It’s over, you’re good to go and you can relax now. Right?  Not quite.

What is Profit?

Before we go any further, let me define profit for you.  I’m going to use Profit in the Accounting definition; that is – what you see when companies release their ‘Profit & Loss Statements’ for the year.  I’ve briefly discussed Gross & Net Profit before, but suffice to say that Gross Profit is after you take the Cost of Good sold (i.e. what you bought the game for) away from Revenue and Net Profit is what happens when you take away all other expenses.

However, Profit isn’t cashflow (or cash in bank) as I’ve mentioned before.  Profit really only tells you how much you ‘should’ have extra after you pay all your expenses.  It doesn’t cover the capital expenses you incur (which are treated differently in accounting terms), nor does it deal with repayment of loans.  Capital expenses can include purchasing a vehicle, a building or (most relevantly) more stock.

Making Money Work

When a business generates a ‘profit’, they start having to pay taxes.  If you are a small business in Canada, your tax rate is only 12%.   So set that amount aside.

What can you do with the remainder profit?

  • pay it out to your shareholders (generally as a dividend)
  • invest in capital items (e.g. buying a vehicle).  The amount you paid will be depreciated over-time which will show up in your P&L statement as depreciation in later years.
  • invest in new stock
  • repay loan(s)

The Mirage

All that above sounds good right? Except… if you are continuing to grow, you often have no choice but to invest that amount in stock.  Here’s why:

Let’s start with some simple assumptions – last year, you did $200,000 in sales.  You now are generating $240,000 – with a net profit of 5%.  That means you generated a net profit of $12,000; after tax profit of $10,560.

Let’s further assume, you did that with a turn rate of 4 (i.e. you had $50,000 in goods) last year.  Now, this year if you ‘keep’ to a turn rate of 4, you need $60,000 worth of goods (4 * 60,0000 = $240,000).  So, of that after tax profit of $10,560 you just dedicated nearly all of it ($60k – $50k = $10k) to increasing your inventory to handle the increase in business.

Why increase inventory? Well, if you didn’t your customers start seeing stockouts much more often – items they want are never in, no matter when they arrive.  You miss out on sales on regular bestsellers and on hot new games because you don’t have the inventory to keep up.  This can be the start of a nasty decline.

This is why profit can be a mirage.  Sure, your company is profitable – but if you keep having to dedicate more funds to the business to keep up with its growth, the profits never really end up in your pocket.  It’s why capital is so important, having adequate amounts and having access to other forms of capital (e.g. investors & loans).

Size vs Quality

I’ve talked about target markets before and how we end up structuring our business to serve each of our target markets better. One thing I have been seeing again and again (often by those who aren’t marketers) is the mistake of confusing size with quality.

Size

You must have seen the various advertisements out there that say ‘Get 6,000+ subscribers in a week’ or ‘Reach 100,0000 readers everyday’ or their like.  The main thrust of these advertisements / methods is that more is better – get a lot of subscribers / viewers / readers / etc. and you’ll do well.  Really.

Except that’s not always the case.  In fact, unless you are in a mass market business (e.g. shirts, pants, food) you can often find you’ve spent a lot of time or money (or both) and generated very little return.

Quality

Why’s that? It’s a matter of quality / target market.  Many of the above ‘quantity’ methods that are promoted focus on providing a large amount of subscribers / readers / fans / etc. – but few of them will actually buy from you.  There can be a number of reasons for why someone is not a valid ‘target’ like:

  • income level
  • age
  • location
  • personality (especially if you are running ‘free’ or ‘contest’ promotions constantly)
  • etc.

An Example

A great personal example of size not necessarily translating to purchases – our video reviews.  We have over 5,000+ subscribers at the time of writing to our video reviews on Youtube with over 1,000 views within the first week of a video being posted.  In comparison, we have only about 1,000 or so newsletter customers.  Yet in terms of conversions, our newsletter beat our videos by a vast percentage.

Now it’s not just the fact that the two are different mediums (customers read our newsletter for release dates, information about our site, etc. while the videos are more informative / educational in nature) but also the matter of targetting.  Newsletter subscribees are interested in purchasing from us – there’s no ‘fluff’ in the newsletter to attract non-customers; while the video reviews attract numerous non-customers from around the world.  In fact, the majority of our subscribers aren’t even Canadian (and with shipping rates being what they are, are automatically non-customers for the most part).

The Caveat

It’s not to say all these promotions / methods / tactics don’t work.  They obviously can and do for some businesses.  They can even provide a great initial boost to a site that is attempting to find a market.  And with the way Facebook and other social media systems work, that initial boost (the seeding) can be extremely important.  It’s just understanding the limitations and likely problems you will run into using these methods.

Mini Review Time!

I’ve not really had a lot of time to play games recently, and many games have had the 1-play and done treatment which means I don’t like writing a long review on them.  On the other hand, it’s been ages so I figure it’s mini-review time!

Bohnanza

Bohnanza‘s a classic card game that is quite good.  It’s a negotiation / set-collection game that has an interesting level of depth to it even though the rules are pretty simple.  It’s a good filler-like game like 7 Wonders with a different series of mechanics.  Unlike 7 Wonders, instead of dealing with the individuals on either side of you, you are negotiating / talking with the entire group.  This makes it both a better group game and worst (increased play-time due to negotiations).

Tammany Hall

Tammany Hall starts off simple, with players kind of doing their own thing in each of their areas.  As the game progresses though, conflict increases as players vie for control in each electorate and along with the conflict comes increased complexity of strategy.  In fact, towards the end Tammany Hall feels like it rivals Louis XIV in terms of brain-burn – there’s just so much to analyse and review that your head starts hurting.  Not a game to play with those prone to analysis paralysis and/or individuals looking for a medium-to-light strategy game.

Suburbia

I haven’t played a lot of these ‘City Building’ themed games so Suburbia was a pleasant surprise.  It’s mostly a tile-laying game like Carcassonne, but tiles may have special abilities that effect or is effected by other player tiles so your tile choice is important.  In addition, managing both your income and reputation levels is very important, with a resource engine being needed to be built to do well.  Unfortunately, this is a game that benefits experienced players significantly (like Race for the Galaxy) due to their familarity with the tiles.  Also, I’d be worried about choosing certain strategies which are dependent on specific tile(s) coming out – if you miss out on those tiles (or have them specifically discarded), you could lose out to another player who manages to get the tiles they require.  S

Clash of Cultures

I explained this game as a streamlined Sid Meier’s Civilization the Board Game to a friend recently and compared it to how Eclipse streamlines Twilight Imperium.  Each are great games in their own ways, with Clash of Cultures playing faster than Civilization, and having a different ‘feel’ than Civilization but missing some of the multiple routes to victory and flexibility Civilization offers.  Overall, a very, very good game and one I’ll definitely add to my own collection for sure.

Flash Point: Fire Rescue

I’ve now played most of the major co-operatives and Flash Point is my no.2 so far after Ghost Stories.  Where Ghost Stories does well at both ratcheting up the tension and sudden bursts of ‘oh god’, Flash Point mostly works on the ‘It’s OK, it’s OK, Oh God!’ method of board hate.  The explosions caused by the fire are a bit too random I find to create a good sense of dread, yet you do worry especially when there’s a lot of fire and a low number of damage markers left.  I do like the fact that you can play up to 6 players though, something that Ghost Stories just can’t do.  It’s probably a game to be added to my collection for lighter game groups that I visit.  It also seems to give the entire ‘alpha gamer’ issue a miss by keeping the entire gameplay / choices obvious enough that there really isn’t a huge amount to discuss / fight over – and when there is, the choices can often be equally as good (do I go here to fight these big fires with everyone else or do I stay here to keep control of the minor fire here in case it flares up?)

Working on the Business

One of the hardest aspects of running a business is that you often have to work in the business as well as work on the business.  Finding the right balance, especially when you’ve grown significantly can be extremely difficult.  I’m using by the way, terms found in the E-Myth.

Working In The Business

When you work in the business, you do the work that is needed to keep the business running on a daily basis.  In our case that means shipping out orders, answering customer e-mails, doing marketing and the like.  Quite often, the work that you do ‘in the business’ is the same from day-to-day.  If no one does this, you don’t have a business.

Working On The Business

Working on the business often means developing processes, but can also mean developing the vision and strategy for the business in the future.   It means putting in writing all the things you are doing, and then looking at those things to figure out a better or more efficient way of doing it.  Sometimes, it’s less efficient but more thorough – like our shipping process.  We’ve progressed from a single shipper doing a single check to multiple shippers doing multiple checks at different points in the shipping process.  It’s driven our shipping error rate down from 2 to 3% per shipment to around 1% at worst.

The Issue

The biggest problem though is finding the time.  It’s really, really hard to do this because you are often so busy working on the business that finding the time and mental energy requires creating space.  That space often means a decline in profit (or personal time) because someone still needs to work in the business.

It’s even worst when you realize that often, the people you hired aren’t going to be as good as you.  Or as dedicated.  I can still often do more work, more efficiently than most of my staff – the general numbers are anywhere between a 10 – 20% decline in efficiency.  This can grate.  In fact, it does grate on your nerves as you wonder why you are paying these people your hard earned money to do less.

Except if you keep thinking like that, you end up burnt out, doing everything and wondering why you can never keep up.  Why as you grow larger, things just get harder and harder.  Quality suffers, you burn out and somehow there’s just never enough time.  Learning to build better processes and work on the business is a hard, hard thing to do – but if you don’t, the business and eventually your customers suffer.

The Caveat

As I’ve mentioned before, there is a choice to grow or stay small.  Some companies, some individuals decide to stay small.  And a lot of these concepts of ‘working in the business’ or ‘on the business’ is something that only really matters if you want to grow (or have hit a certain size).  Sometimes, staying small is the right choice.

The Office Move

So, I haven’t really posted much about why we are moving.  And it’s obvious because most people who come in ask – why did we move?

The simple answer? We had outgrown the old location and needed a larger spcae.  This is easily seen by the number of days it took to set-up.  Our last move 2 1/3 years ago took us 2 days with 3 helpers on day 1 and myself on day 2.  This office move took 4 days, with up to 9 helpers on day 1 and varying numbers for the next 3 days (minimum 5 of us!).  So, the amount of work needed to move product out of the old location, move it into the new location, set-up new shelves, build new shelves, etc was significantly higher.

We had built out the old space so tightly that there really was no wasted space left – we figured we could (maybe) squeeze in another 2 shelves before we hit full capacity.  If we wanted to grow, we had to move.

Grow or Stay?

From an outside perspective, the easy answer is grow.  After all, a bigger space means more stock, more product, more sales.  More money right?

Not always.  In fact, during the growth stage it means less money.  How much less depends on how aggressive your growth targets are (and how long your lease is!).  The additional space cost, the set-up cost, the downtime, all of it are expenses.  It’s nice to grow, but with growth comes additional expenses.   Your fixed expenses balloon and you  now have to make more money to cover them before you can get back to your previous levels of profitability.

There’s also another advantage of staying – you force yourself to get more streamlined and efficient.  If you only have so much space, you learn to get creative about storage.  You watch your inventory like a hawk and move dead product out faster because you need the space for product that still sells.  With more space, with higher growth, you can let things like that slide.

For us though (okay, me); the decision to stay still or grow is relatively easy.  I have long-term goals and those don’t work for where we are; so grow it is.

The Move

I’m not going to post much about the move beyond to say that it was murderous and I made a major mistake by underestimating exactly how much work was involved.  We had grown in our old space so well that when we actually made the move, I had not realised exactly how much we had grown – and the logarithmic increase in work setting up the space meant.

All That Space

So now what? If you look at the photos you might see a huge expanse of free space in the back of the warehouse and even in the office.

Obviously, Starlit is going to continue growing.  We have plans to expand our miniature and miniature accessories further.  I am considering going ‘deeper’ on popular games so that we do not stock-out as often.  There’s this entire CCG craze that we are missing (and might continue to miss on purpose).

We also have plans to grow in another direction… but that announcement is going to have to wait 🙂

 

A Pictorial Post of Our Move

Day 1 of the Move - Nothing in Here Yet
Day 1 of the Move. Nothing here yet. The place is freshly painted and smells it – thus the lone running fan and open loading dock.
Morning of Day 2 - shelves are going up!
Morning of Day 2 – shelves are going up!
View from the back - start of Day 3. Shelves are up, stock is here
View from the back – start of Day 3. Shelves are up, stock is here
End of Day 4 - stock is on shelves and we're shipping
End of Day 4 – stock is on shelves and we’re shipping
Just over a week in moved to the new place.  Stock on floor is from the con (receiving) and the huge shipment on Friday.
Just over a week in moved to the new place. Stock on floor is from the con (receiving) and the huge shipment on Friday.
Front view - more stock going up on shelves as we get comfortable with the space
Front view – more stock going up on shelves as we get comfortable with the space
View from the packing station a week and 2 days later
View from the packing station a week and 2 days later
View from the packing station a week and 2 days later (2)
View from the packing station a week and 2 days later (2)
A view from the packing station / loading dock.  The (mostly) complete workspace
A view from the packing station / loading dock. The (mostly) complete workspace
A view from the packing station / loading dock.  The (mostly) complete workspace
A view from the packing station / loading dock. The (mostly) complete workspace. Just more shelving needed for overstock items and boxes.
The office space (1)
The office space (1)
The office space (2). Note the small table set-up for games. Randy & Keith have been playing X-Wing...
The office space (2). Note the small table set-up for games. Randy & Keith have been playing X-Wing…